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4 Procurement stage
At a glance
Background
Where a significant component of a project is to be provided by external parties, sound
procurement planning and management is crucial to effective project management.
Key findings
The Bendigo and Ballarat pipeline procurement processes were generally well planned
and managed. Coliban and Central Highlands:
• developed procurement strategies to meet the tight timeframes, using the
information gained from discussions with prospective tenderers and advice from
consultants
• identified and assessed risks associated with the tender and established
appropriate procurement processes.
Coliban’s conversion of a standard procurement contract into an alliance agreement
exposed the agency to higher risk and costs and weakened its bargaining position.
Consequently, Coliban is likely to have paid more for the contracted works than it
would have paid, had the alliance agreement been formed as part of a normal alliance
process.
Also Coliban did not prepare a specific probity or contract management plan for the
project.
Coliban’s and Central Highlands’ probity auditors did not attend all meetings with
tenderers.
Central Highlands’ decision to purchase pipe directly from pipe manufacturers and the
strategy adopted to engage construction contractors, resulted in it accepting the
project supply risk and a large part of the construction risk. While this decision was
driven by Central Highlands’ need to complete the pipeline as quickly as possible, it
exposed the Authority to a higher level of risk than would have been the case had
another procurement strategy been adopted. To date, this calculated risk has had no
negative financial or other impacts.
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Procurement stage
At a glance - continued
Key recommendations
• For all major procurements, water authorities should prepare a contract
management plan and probity plan. (Recommendation 4.1)
• The Department of Treasury and Finance should incorporate into its investment
management guidance materials, clear articulation that public sector agencies
should:
• only enter into alliance procurement arrangements after assessing the
appropriateness of these arrangements for the particular procurement
exercise and assessing the suitability of an alliance partner, using the
Department of Treasury and Finance’s alliancing guidelines
• not tender for lump-sum contracts and then change the arrangements to
alliance contracts. (Recommendation 4.2)
• For major procurements water authorities should expand the role of the probity
auditor so all meetings and communications with tenderers are monitored.
(Recommendation 4.3)
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4.1 Bendigo
4.1.1 Selecting the procurement method
In developing its procurement strategy, Coliban considered a number of alternatives
including:
• a public private partnership (PPP)
• a design and construct contract
• an alliance agreement
• use of separate contracts for project design, construction and materials supply.
Coliban recognised that, while greater levels of risk transfer would be possible with a
PPP approach, and, to a lesser extent, with a design and construct contract or alliance,
the lengthy establishment time for these approaches would mean that its scheduled
timeframes could not be met. Specifically, an alliance model was rejected at that time
because this option would not have allowed the project to be finished by the proposed
completion date, due to the amount of time required to establish a target cost for the
project. As a result, Coliban decided to use its engineering consultant to design the
project, and to separately tender for the pipe supply and construction works.
This strategy had a number of advantages:
• it allowed the construction of the pipeline to be tendered at the same time the
pipeline was being designed
• it separated the project design, construction of the pipeline and purchase of
materials, enabled Coliban to submit planning application approvals without
having to wait until a construction contractor was engaged, and enabled Coliban
to purchase the required materials well in advance of the construction contractors
needs
• it provided access to a greater resource pool by enabling smaller contractors,
who were not capable of meeting Coliban’s requirements for a large design,
supply and construct contract, to tender.
In developing its procurement approach, the project team considered the present work
loads and capacity constraints faced by tenderers. This was important due to the
significant involvement of pipe suppliers and contractors in other pipeline projects at
the time the project was tendered.
4.1.2 Contract management plan
Coliban’s Project Management Manual requires the preparation of a Contract
Management Plan for contracts over $75 000 in value and more than three months in
duration. The manual requires the following information to be included in the plan:
• a work program
• an outline of the project reporting processes
• inspections of work undertaken
• auditing of the contractor’s management system (if required)
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Procurement stage
• details of the contractual, occupational health and safety and environmental
management issues relating to the project.
While a Contract Management Plan was not created for the Bendigo pipeline, most of
these elements were included in other documents created for the project or in general
procedures developed for the management of Coliban projects.
4.1.3 Establishing a probity framework
Due to the number of tenders conducted by Coliban, it has established a generic
probity plan for its major procurements (over $100 000). The plan covers the following
aspects of procurement probity:
• probity principles
• role and responsibilities of the probity auditor
• probity tasks and steps
• conflicts of interest
• information management, including security and confidentiality of information
• communication with tenderers
• guidelines to assist its staff to manage probity issues
• record keeping.
The plan includes a checklist of 40 probity requirements. The plan provides for the
project team or an external party to sign and date each requirement to certify Coliban’s
compliance with the plan. Completion of the checklist provides a useful control to
ensure all probity requirements have been met.
Coliban did not prepare a specific probity plan for the procurement. Nor did it complete
the checklist included in the generic plan. Nonetheless, audit established that most of
the requirements outlined in the generic probity plan were adhered to by Coliban.
Role of the probity auditor
In a major tender the role of the probity adviser is to establish and manage the probity
approach and advise the tendering authority on probity issues. The role of the probity
auditor is to independently review and provide assurance on the probity of the tender
process.
In Coliban’s procurement process for the Bendigo pipeline, the roles of the probity
adviser and probity auditor were performed by the same organisation. While combining
the roles may benefit the tendering authority through cost savings and efficiencies,
having a separate probity auditor role provides a higher level of assurance about the
integrity of the tender process. Combining the roles serves to confuse accountabilities.
Audit acknowledges that although this was not a requirement it is considered good
practice to divide the probity auditor and adviser roles.
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4.1.4 The procurement process
Separate tenders were conducted for the supply of materials, project services and
construction of the pipeline.
Tender for services agreement
A public tender was advertised on 4 and 7 October 2006 to engage two contractors on
a services agreement. The tender required them to:
• assist Coliban’s engineering consultant to finalise the detailed design of the
pipeline
• attend a number of value engineering workshops
• prepare detailed construction programs, executions plan and industrial relations
strategies
• prepare a fixed price tender for the pipeline construction contract.
The tender closed on 24 October 2006 with Coliban receiving ten tenders from pipeline
construction contractors. These contractors were then assessed by the evaluation
team against the predetermined selection criteria. From this process five tenders were
then short-listed with one of these short-listed tenderers subsequently withdrawing its
tender.
Interviews and a further tender evaluation were then undertaken on the four
short-listed tenderers. From this process, two construction companies were awarded
the services agreement contracts.
Tender for pipe materials
Coliban advertised its pipe supply tender in both national and local press on 30 August
and 2 September 2006. Contractors responding to the advertisement were provided
with the tender documentation and a ‘notification to tenderers’ was issued on
7 September 2006.
When tenders closed on 12 September 2006, three tenders were received. Following a
detailed tender assessment, the preferred tenderer was selected. This tender:
• met the tender specifications
• had the highest overall rating for demonstrated satisfaction of the tender
assessment criteria
• quoted the lowest cost for the project.
Following completion of the assessment process, Coliban’s engineering consultant
held discussions with the preferred tenderer to:
• clarify the commercial conditions of the contract and technical aspects of its bid,
• request additional information on the tenderers recent project experience and
cash flows
• obtain a detailed program.
These meetings were attended by the Probity Auditor.
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Procurement stage
The contract was awarded on 17 October 2006. The same process was followed for
each of the other supply contracts.
Tender for pipeline construction
On 14 November 2006, the two contractors engaged under the project services
agreement were asked to tender for the pipeline construction. Tenders closed on
13 December 2006.
Prior to submitting their tenders, the two companies engaged under the services
agreement were required to attend a number of joint and separate project information
sessions. These sessions, which were attended by Coliban’s engineering consultant
and Coliban staff, were held to clarify the project requirements and proposed
construction process.
Both firms submitted a tender and these tenders were assessed by the evaluation
team against the selection criteria. Assessments of the tenders were carried out by the
engineering consultant in conjunction with the Coliban project team in accordance with
the approved evaluation criteria and the Association of Consulting Engineers Australia
guidelines.
As both companies were assessed as capable of meeting the tender requirements, the
selection of the preferred tender effectively came down to price. The approved
tenderer was engaged on 20 December 2006.
4.1.5 Managing changes to the tender process and
requirements
Following the awarding of the construction contract, construction of the pipeline began
in January 2007.
On 7 March 2007 the contractor indicated to Coliban that:
• the adversarial nature of the contractual arrangements and the manner in which
Coliban’s engineering consultant was managing the project was delaying the
project
• continuing with these arrangements would result in the project failing to meet its
completion date
• there was little incentive for it to deliver the project within the tight timeframes
required by the contract.
The contractor proposed that these problems could be overcome by terminating the
construction contract (lump sum) and entering into an alliance agreement (target cost
contract). The contractor’s concerns were discussed with Coliban on 16 March 2007
where the contractor offered to use the existing tendered contract price as the basis for
establishing a target cost for the project.
84 Piping the System — Goldfields Superpipe
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The project team identified a number of potential changes to address problems
associated with the existing contractual arrangements. The following options were
considered:
• staying with the existing contract
• providing additional funds to the contractor to accelerate the completion of the
project
• providing additional funds to the contractor to accelerate the completion of the
project and offer the contractor an early completion bonus of $1 million
• moving to an alliance agreement, which included a bonus of $1 million for
completing the project by 1 September 2007.
The cost, benefits and risks of each of these options were assessed and this
assessment, along with a recommendation to move to an alliance was presented to
the Board on 3 May 2007.
The project team considered the project would not be completed on time if Coliban
continued with the existing contract.
On 30 April 2007 in anticipation of the move to an alliance, Coliban engaged a
consultant to hold a one day workshop for internal and external staff working on the
project to ‘generate aligned leadership and direction for the alliance.’
The Board accepted the recommendation of the project team and determined that:
• the existing contract with the contractor be terminated
• the Authority enter into an alliance with the contractor for the construction of the
pipeline
• the contractor be paid a $1 million bonus if the project is completed by the due
date.
Coliban indicated that the new arrangement represented an amendment to the original
contract, as the nature and scope of the works had not changed. In May 2007, four
months into the contract period with the works well advanced, the Authority entered
into an alliance agreement with the contractor.
The alliance arrangement proposed a target cost of $35.2 million, plus a $1 million
bonus if the pipeline was completed by 1 September 2007. This amount was
$6.3 million higher than the contract cost initially established in the tender process.
Figure 4A outlines how the target cost was calculated.
The difference comprised the following four elements:
• $3.1 million for variations under the original contract, agreed to by the Authority
• $2.3 million comprising ($1.3 million) acceleration costs and $1 million incentive
to complete the project by September 2007
• $1.3 million to cover additional design and other costs
• $0.4 million risk and opportunity discount.
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In assessing alternatives to complete the pipeline by 1 September 2007, Coliban
estimated that if it had stayed with the original contract it would have had to pay an
additional $6.6 million to complete the project by the due date, comprising:
• $5.3 million, for contract variations and acceleration costs
• $1.3 million for additional design and other costs.
Accordingly, the Authority effectively paid $2.3 million above the original contract price
to ensure it achieved its objective of completing the pipeline by 1 September 2007.
Figure 4A
Calculation of target cost
Cost
Component $million
Original contract cost (Australian Standard contract) 29.9
Variations 3.1
Acceleration costs 1.3
Additional design and other costs 1.3
Risk and opportunity discount (0.4)
Target cost 35.2
Incentive 1.0
Total 36.2
Source: Coliban Water.
While project alliances can provide significant benefits, there are also issues and risks
associated with this form of procurement. Establishing an effective project alliance
involves a number of processes:
• assessing whether an alliance is the best method of procuring the required
products and services
• establishing an alliance framework
• selecting an alliance partner
• determining the project target cost, risk and benefit sharing arrangements.
The Department of Treasury and Finance’s (DTF) Project Alliancing Practitioners’
Guide April 2006 provides guidance to public agencies on the use of alliances. The
guidelines indicate that project alliancing should generally only be considered in the
delivery of complex, high risk infrastructure projects, where risks are unpredictable and
best managed collectively. Situations where an alliance would be suitable include
where there are:
• numerous complex and/or unpredictable risks
• complex stakeholder issues
• complex external threats or opportunities, that can only be managed collectively
• very tight timelines (driven by project risk rather than organisational capability)
• output specifications which cannot be clearly defined upfront.
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Construction of new, and replacement of old, water pipelines is an activity regularly
undertaken by water authorities. Compared with many other projects, the processes
involved were not complex, and the specifications were relatively easy to define.
During the development of the business case and the procurement strategy, Coliban,
did consider an alliance approach, however, due to the time required to negotiate a
target cost, the alliance was not considered further. A detailed assessment of whether
the project was suitable for an alliance was not undertaken.
Consequently, Coliban moved to an alliance agreement, without first:
• establishing an alliance framework
• conducting a process to select an alliance partner (this is a distinctly different
process than used to select a contractor under a standard contractual
arrangement)
• undertaking the tailored process recommended in the Department of Treasury
and Finance’s guidelines to determine the project target cost, risk and benefit
sharing arrangements.
The alliance agreement contained the key features outlined in the guidelines, except
for:
• a specific ‘no partnership/joint venture’ clause
• drafting the contract in the third person.
Coliban’s conversion of a standard procurement contract into an alliance agreement
exposed the agency to higher risk and costs because:
• the assessment of alliance partners involves a distinctly different process and
focus from the assessment of providers under standard procurement contracts
• moving to an alliance agreement without the potential competitive tension from
other bidders heightens the prospect of diminished value for money, in terms of
price and risk allocation.
4.1.6 Probity
Communicating with tenderers
Coliban’s generic probity plan outlined the communications protocols to be followed by
staff when communicating with tenderers. It required the Steering Committee to
establish internal processes to control and monitor communications.
During the procurement process, Coliban had a number of different interactions with
tenderers, including information sessions and clarification and negotiation meetings.
During the meetings, Coliban followed its communications protocols.
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Tender for project services agreement
For the project services agreement, interviews were conducted with the four
short-listed tenderers. A list of key questions were established prior to the meeting. The
names of the participants were recorded by Coliban’s engineering consultant in the
meeting minutes and the duration of the interviews were approximately the same.
Interviews were attended by the consultant, Coliban staff and Coliban’s commercial
adviser. The meetings were not attended by the probity auditor.
Tender for pipe supply
The engineering consultant interviewed the preferred tenderer for the pipe supply
contract. A list of questions was prepared prior to this meeting, which focused on
clarifying the commercial conditions of the contract and technical aspects of its tender.
The consultant also requested a detailed work program and additional information on
the company’s recent project experience and cash flows.
The names of those who attended the meeting were recorded in the meeting minutes
and a summary of the discussion was provided in the tender report.
Neither Coliban staff nor the probity auditor attended this meeting.
Tender for pipeline construction
Prior to submitting their tenders, the two short-listed tenderers attended a number of
joint and separate project information sessions. These sessions contained no
individual commercial benefit to the tenderers.
The sessions were attended by Coliban staff and its engineering consultant. Minutes
were taken and the names of attendees recorded. A tender report was sent to the
Steering Committee outlining this process.
Documenting communications
The probity plan outlined requirements for the documentation of communications with
tenderers. Coliban documented its communications with tenderers in meeting minutes.
In some cases these minutes were included in the tender reports.
Independent monitoring of communications
The probity auditor was present at the closing of the tenders, but did not attend
meetings, briefings, and interviews or review the correspondence between tenderers
and Coliban.
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4.2 Conclusion
The Bendigo section of the pipeline procurement processes was generally well
planned and managed. Coliban:
• developed procurement strategies to meet the tight timeframes, using the
information gained from discussions with prospective tenderers and advice from
consultants
• identified and assessed risks associated with the tender
• established appropriate procurement processes.
Coliban’s conversion of a standard procurement contract into an alliance agreement
exposed the agency to higher risk and costs because:
• the assessment of alliance partners involves a materially different process and
focus from the assessment of providers under standard procurement contracts
• moving to an alliance agreement without the competitive tension from other
bidders heightens the prospect of diminished value for money, in terms of price
and risk allocation.
As a result of the reduced risk to the contractor in alliance agreements, contractors are
normally willing to accept a lower price for a target cost contract than a lump sum
contract. Coliban’s decision to enter into an alliance agreement with the contractor who
had been selected through a standard tender, combined with its need to have the
project completed by 1 September 2007, weakened its bargaining position.
Consequently, Coliban is likely to have paid more for the contracted works than it
would have paid, had the alliance agreement been formed as part of a normal alliance
process.
Due to time constraints, Coliban did not develop a contract management plan or a
probity plan for the procurement. These plans were required by its internal procedures.
Although the key elements of these plans were prepared in other documentation,
better practice would have seen Coliban develop these dedicated plans. In this
instance, there is no indication that the absence of the plans undermined the integrity
of the procurement.
Coliban’s probity auditor did not attend all meetings with tenderers. Accordingly the
Authority cannot be assured as to the overall integrity of the process.
Recommendations
4.1 For major procurements water authorities should prepare a contract management
plan and probity plan
4.2 The Department of Treasury and Finance should incorporate into its investment
management guidance materials, clear articulation that public sector agencies
should:
Piping the System — Goldfields Superpipe 89
Procurement stage
• only enter into alliance procurement arrangements after assessing the
appropriateness of these arrangements for the particular procurement
exercise and assessing the suitability of an alliance partner, using the
Department of Treasury and Finance’s alliancing guidelines
• not tender for lump-sum contracts and then change the arrangements to
alliance contracts.
4.3 Ballarat
4.3.1 Selecting the procurement approach
In developing its procurement strategy, Central Highlands considered and assessed
several alternative contractual arrangements for the construction of the pipeline. These
alternative arrangements are outlined in Figure 4B.
Figure 4B
Alternatives considered for the construction of the pipeline
Contractual
arrangement Central Highlands’ evaluation of the arrangement
Private/Public Procurement as a PPP under a Partnerships Victoria model was
Partnership (PPP) not considered appropriate for the following reasons:
• a PPP would have provided limited value, as Central
Highlands had the core knowledge and skills required to
construct and operate a water pipeline
• neither the construction nor the operation of the pipeline
involved a level of complexity or scale that would warrant, or
benefit from, the participation of a private sector constructor
and operator
• involvement of the private sector through a PPP was unlikely
to deliver enhanced value for money through risk transfer or
innovation nor was there any potential for asset use beyond
what Central Highlands could provide
• the State and Commonwealth Governments had committed a
large component of the funding required for the project and
there was no need to access funds through a private sector
participant.
Design of the pipeline by This alternative was not considered appropriate due to the tight
Central Highlands and project timeline.
tender for the pipeline Under this approach the tender could not have been put to the
construction market until the design was at least 85 per cent complete, which
was unlikely to have occurred until March/April 2007.
Once put to the market the tender response and evaluation
process would take at least two months. This would have
prevented the commencement of pipeline construction until at
least June/July 2007.
Design, Build and Central Highlands decided that there was no benefit to be gained
Operate (DBO) from a private sector operator. Therefore this alternative was not
an option.
Design, Build, Finance Not considered appropriate for the reasons discussed above
and Operate (DBFO) (DBO) and due to funding already being obtained.
90 Piping the System — Goldfields Superpipe
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Figure 4B
Alternatives considered for the construction of the pipeline - continued
Contractual
arrangement Central Highlands’ evaluation of the arrangement
Alliance/Partnering Whilst an alliance/partnering strategy may have provided some
benefits to Central Highlands, it would have imposed a significant
administrative burden on management and may have increased
the overall cost of delivering the project.
Central Highlands considered that the key project risks could be
effectively addressed through alternative strategies. The
additional cost and inherent uncertainties of alliance/partnership
procurement were not considered warranted.
Engaging consultants to This approach was preferred by Central Highlands as:
design the pipeline. • contractors could be engaged and construction of the pipeline
Tendering for the supply could begin more quickly than under the other options
of pipes and associated • cost savings were possible due to Central Highlands not
materials. having to engage a head contractor
Tendering for contractors • it gave Central Highlands greater control over the construction
to construct the pipeline works to meet the required timelines.
under the management
of Central Highlands and
paid on an agreed
schedule of rates.
Source: Central Highlands Water
Central Highlands’ procurement approach guaranteed construction contractors a
minimum amount of work provided they committed to being available either during the
entire construction period or an agreed part of the construction period. As contractors
were allocated works, the relevant scheduled rates were applied or, if different
scenarios were encountered or predicted, modified rates were agreed. Incentives were
offered to reward contractors for early delivery of project milestones.
The approach differed from that normally adopted by Central Highlands for
infrastructure projects. Under Central Highlands’ normal approach, the contractor
would procure all the materials and fittings for the job and effectively accept the
quantity variation risk.
Central Highlands recognised that its procurement strategy resulted in it accepting the
project supply risk and the majority of the construction risk. However, it considered that
the imperative of meeting the projects timelines outweighed the commercial and
administrative benefits of transferring risk.
Following feedback from potential suppliers and the Department of Treasury and
Finance’s Gateway Review of the project, Central Highlands decided to reconsider its
procurement strategy and subsequently adopted a more traditional approach, which
involved a lump sum contract with a schedule of rates to manage variation risks from
nominated quantities.
Central Highlands’ approach resulted in it accepting the following risks:
• additional costs where the pipeline length required was greater than included in
the contract due to the contractor striking rock or encountering other adverse
conditions
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• supply of pipes and fittings and creation of stock piles
• securing site access at nominated contractor sites
• planning approvals and significant permits
• agency negotiation (VicTrack, VicRoads, Councils)
• land owner contact and negotiations.
On the other hand, this procurement strategy allowed smaller contractors, who would
not normally have had the capability to tender for this type of project, to bid for work on
the pipeline.
In developing procurement approaches, tendering authorities identify procurement
risks and allocate these risks to the party best able to manage them. In government
infrastructure construction tenders this usually results in:
• the allocation of supply risk to the tenderer (tenderer provides both materials and
construction services)
• setting a fixed contract price for the work tendered, through the tender process,
which is binding on the authority and contractors.
Central Highlands’ decision to purchase pipe directly from pipe manufacturers and the
strategy adopted to engage construction contractors, resulted in it accepting the
project supply risk and a large part of the construction risk. While this decision was
driven by Central Highlands’ need to complete the pipeline as quickly as possible, it
exposed the Authority to a higher level of risk than would have been the case had
another procurement strategy been adopted. To date, this calculated risk has had no
negative financial or other impacts.
4.3.2 Procurement plan and probity framework
While no specific plan for the procurement was prepared, the Central Highlands
Tendering and Contract Management Procedures Manual outlined the processes and
requirements for the tender process. Most of the information normally found in a
procurement plan was contained in the procurement strategy, probity plan and other
Central Highlands documents.
The probity auditor prepared a probity plan for the procurement, to ensure the integrity
of the process, and assist Central Highlands to identify and manage probity issues.
The plan outlined the role of the probity adviser and included:
• controls to assist Central Highlands staff to maintain the security and
confidentiality of information
• guidance on the management of conflicts of interest
• a communications protocol
• guidance on protecting proprietary information.
As with Coliban’s pipeline procurement, the roles of the probity adviser and probity
auditor in the Central Highlands procurement process were performed by the same
organisation. Audit acknowledges that although this was not a requirement it is
considered good practice to separate the probity auditor and adviser roles.
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4.3.3 Managing the tender
The procurement process
Central Highlands separately tendered for the pipeline design, pipeline construction
and purchase of materials.
Technical services and pipeline design
On 20 October 2006 four consultants were asked to submit tenders for the project
management and tender design consultancy.
When the submissions were evaluated, one consultant was eliminated because it
lacked Australian experience. Another was eliminated because it was already
committed to other projects. The preferred consultant was selected for its superior
financial and technical capability and was appointed on 28 November 2007.
After completing the evaluation process, Central Highlands offered to reimburse the
unsuccessful consultants for the costs incurred by them in developing their tenders.
One consultant accepted this offer.
Pipeline construction (Northern and Southern)
The initial tender for the pipeline construction enabled contractors to separately tender
for the northern, southern or both sections of the pipeline.
Central Highlands advertised for interested contractors to submit a registration of
interest for the construction of the pipeline. The 16 contractors submitting registrations
of interest were initially assessed against the selection criteria. Ten of these
contractors were interviewed to assess their broad capabilities and to test the market’s
response to various procurement strategies. These contractors were then provided
with the tender documents and invited to tender for the construction contract.
A consultant was also engaged to undertake probity checks on the ten companies
submitting tenders that were short-listed.
The seven tenders received were assessed by the evaluation team against the
evaluation criteria. One tender was eliminated as the price submitted was considered
by the evaluation team as being excessive.
The remaining six tenderers received clarification questions prior to meetings with the
evaluation panel. Following these meetings, tenderers were given an opportunity to
clarify their tenders prior to the completion of the evaluation process.
One of the remaining six tenders was eliminated due to an uncompetitive price, an
underdeveloped tender and non-conformance with tender requirements.
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A detailed assessment was undertaken on the remaining five tenders. At the end of
this process the evaluation team recommended that the Authority separately tender
the north and south sections of the pipeline as:
• it considered that engaging one tenderer to construct the entire pipeline created a
risk that the pipeline may not be completed on time
• only one tenderer was considered capable of delivering the entire pipeline in the
proposed timeline and the price submitted by this tenderer was uncompetitive
when compared to the cost of engaging separate tenders for each section.
Following the assessment process, preferred tenders were selected for the northern
and southern sections of the pipeline. The tenders selected had the highest overall
rating for their section of the pipeline and provided the lowest and second lowest price
respectively.
The contracts for construction of the northern and southern pipelines were awarded on
13 June 2007.
The evaluation team had some concern regarding the ability of the preferred tenderer,
selected for the southern section of the pipeline to complete the work in the required
timeframe. This risk was managed by:
• dividing the contract into two components
• including a contractual clause, that allowed Central Highlands to re-tender part of
the contract if the contractor failed to meet the pipe-laying milestone rate set in
the contract.
Pipeline construction (Central)
Central Highlands advised the contractor that it was going to re-tender part of the
contracted work, when the contractor could not meet the timelines specified in the
contract.
On 12 October 2007 six of the contractors submitting tenders for the original
construction contract (including the contactor engaged to construct the northern
section of the pipeline) were advised that Central Highlands would be calling for
tenders. A request for tender was issued to five contractors (one contractor decided not
to submit a tender).
Following an evaluation of the tenders, one tender was eliminated on price and the
remaining four tenders were subject to further assessment and evaluation.
While all four tenders received were assessed as capable of undertaking the proposed
works, the contract was awarded to the contactor engaged to construct the northern
section of the pipeline. This contractor tendered the lowest price and offered more
equipment. Engagement of this contractor was also attractive to Central Highlands as
it did not have to engage an additional party and the contractor:
• had its equipment on site
• already had an environmental management plan approved by DSE
• understood the stakeholder issues.
94 Piping the System — Goldfields Superpipe
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The contract was awarded on 13 November 2007.
Supply of pipes
On 8 November 2007 Central Highlands issued a registration of interest for the supply
of pipes and fittings. Ten organisations registered their interest.
After receiving the registrations of interest, companies were evaluated against
predetermined selection criteria, interviewed and asked a series of standard questions.
These meetings were used to assess the availability and interest of contractors and to
allow them to respond to the proposed terms and conditions to be included in the
construction contract.
One of the four tenders received was eliminated as it did not submit a conforming
tender and another eliminated on price. The two short-listed tenders were interviewed
and further evaluated. Following this process a preferred tender was selected. This
tender received the highest overall rating and offered the lowest cost. The contractor
was also assessed as more likely to achieve the project timelines than the other
contractor.
4.3.4 Managing changes to the tender process and
requirements
During its procurement process Central Highlands awarded separate pipe laying
contracts for the northern and southern sections of the pipeline. This decision was part
of its broader strategy to construct the pipeline within the required timeline.
In September 2007, prior to the completion of the contracted work on the southern
section of the pipeline, the pipe laying contractor informed Central Highlands that the
firm was unable to meet the critical pipe laying milestones outlined in the contract. The
contractor agreed to Central Highlands re-tendering a separable portion of the route
following discussions about its slower rate of progress.
In these circumstances, the contract allowed Central Highlands to re-tender the
separable portions of the work.
The incomplete work on the southern section of the pipeline was successfully
re-tendered and the contractor constructing the northern section of the pipeline was
engaged to undertake this work. This was consistent with the conditions included in the
original contract.
Piping the System — Goldfields Superpipe 95
Procurement stage
4.3.5 Probity
Managing conflicts of interest
At the commencement of the project, the Project Director wrote to all relevant staff and
contractors, advising them of the requirements outlined in the probity plan and seeking
an assurance that no conflicts of interest existed. Conflict of interest declarations were
signed and documented appropriately.
Central Highlands identified a conflict of interest for several tenders. This conflict arose
because Central Highlands’ engineering consultant, who was assisting with the tender
evaluation, was owned by a firm that was likely to tender for the supply of pipes, valves
and other materials.
Central Highlands engaged another engineering consultant to replace its original
consultant.
The probity auditor provided assurance that the change had not damaged the integrity
of the tender process.
4.3.6 Independent oversight of communications
While the probity auditor was aware of all meetings held with tenderers, the probity
auditor did not attend all of these meetings and did not monitor all communications
with tenderers. Accordingly the Authority cannot be assured that sensitive tender
information has been controlled and that tenderers have been treated consistently and
fairly.
4.4 Conclusion
The Ballarat pipeline procurement processes were generally well planned and
managed. Central Highlands:
• developed procurement strategies to meet the tight timeframes, using the
information gained from discussions with prospective tenderers and advice from
consultants
• identified and assessed risks associated with the tender
• established appropriate procurement processes.
Central Highlands’ probity auditor did not attend all meetings with tenderers.
Accordingly the Authority cannot be assured as to the overall integrity of the process.
Recommendation
4.3 For major procurements water authorities should expand the role of the probity
auditor so all meetings and communications with tenderers are monitored.
96 Piping the System — Goldfields Superpipe
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